Confusion. This is experienced within the ever growing world of Blockchain and cryptocurrency. For the majority of the world population, the two are synonymous. However, they are different and often people are simply confused into believing that they are the same.
Dear Diary,
It has been on my mind recently the relationship between the “Blockchain” and “cryptocurrency”. The general public often times believes the two to be the same. However, this is not the case. cryptocurrency often utilizes a Blockchain in order to maintain data integrity of the ledger. Blockchain does not have to do anything with cryptocurrency in order to be used.
I have asked myself why people continue to discuss blockchain and it’s uses within only the realm of cryptocurrency many times. I believe it is because the nature of the blockchain and how it is used is so new, and that the largest use case for the blockchain currently is the massive cryptocurrency space. I think the best way to explain the difference is to look at each term and what it truely means.
Blockchain
The blockchain or rather a blockchain is essentially a collection of data that links to itself forming a chain. This chain can be used to verify the integrity of the data itself. If one was to draw a very simple version of a blockchain with a pencil and paper, they could draw a few boxes and and some arrows to form a primitive blockchain. One could even use ones old highschool secret code languages to “verify” the data. Which, by the way, is actually called a Ceasar Cipher (I’ll tell you about that later).
For example we will shift all numbers by 3 positions. So A -> D and B -> E and Z -> C and so on and so on. So if our box contain a simple word then the next box would point to it using the secret code.
Here is an example:
+------------+ +-----------------+
| | | |
| | | |
+------------v----+ +----+-------v--+ +-----------+---+
| | |KHOOR | |ZRUOG |
+-----------------+ +---------------+ +---------------+
|Hello | |World | |Tada |
+-----------------+ +---------------+ +---------------+
As one can see here, we can verify that the box that contains World is correct if we reverse ZRUOG by 3 character positions. This is an extremly primitive version, and in no way is secure. This also would require large amounts of storage to hold larger data, and only works for english characters.
So by using the blockchain or an implementation there of, one can verify the contents of the “blocks” by checking hashes and ciphers against it. Those hashes point to other blocks and thus a chain of blocks is created.
This is the heart of a blockchain. The ability to take date in chunks or blocks and verify they it is correct against all the other blocks in the chain.
A blockchain can contain any type of data.
When the chain structure is built it can be decided if it is meerly transactions, encrypted messages, binary representation of the declaration of independance, or anything you can imagine. However, it should be stated that most blockchains are not efficient so it should only be used for data that requires true data integrity.
Once one start adding more layers it becomes more complicated. For instance, creating a system for distributing these blocks to other people without a central party controlling the data. Or perhaps, sending data to someone by means of the peer to peer connection and validating that the data received is correct by validating the blockchain. Once one starts adding these layers then the blockchain becomes part of a larger ecosystem of software. It no longer is just a “blockchain” but is a living breathing part of software. This is where we get into what cryptocurrency is, in relation to the blockchain.
Cryptocurrency
The idea behind cryptocurrency is that it is a virtual currency can be used. At the root of it all, it is just a virtual currency. Before the term cryptocurrency existed, there were virtual currencies. Now one could say “Well to be a cryptocurrency it has to use the blockchain to send transactions” and to that I respond.
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A cryptocurrency doesn’t have to use a blockchain. It could use a hashgraph, a tangle, a linked list, and any other type of data storage and transmission system.
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Nothing requires a blockchain to send a transaction, the blockchain simply verifies that a transaction is correct and on the “ledger”. Transactions are sent separately of the chain and stored to the ledger for future proof and verification.
Now the community of the cryptosphere (what I like to call all of cryptocurriencies combined) have passionate views on what is and isn’t an cryptocurrency. These views vary wildly and mostly fall to politics and bickering within the cryptosphere. I personally don’t like dealing with politics and care only about the technology and security of technology.
Your most popular cryptocurrency “Bitcoin” uses a blockchain. On this blockchain each block stores a list of transactions between accounts. If you hold the key to an account you can add new transactions to these lists. So in this case the cryptocurrency uses a blockchain to validate and ensure the integrity of the list of transactions at all times. Beyond that such as how many transactions it can do, how it transfers the data, how people create and use accounts and more are not blockchain. Those are specific details of the software that were written to implement this currency system.
Summary
Now Diary, I know I did not go into much detail on the cryptocurrency side and that is because it does not need a lot of detail. Based on the information stated above, cryptocurrency only uses the blockchain (and only sometimes) to verify the integrity of it’s transaction data. Just because someone talksa bout blockchain, it does not mean they are talking about cryptocurrency.
I have many ideas about blockchain use cases that are real world needs, however they have nothing to do with money or currency of any kind.
I hope this writing of thoughts helps someone understand the difference between blockchain and cryptocurrency and how they relate.
Sincerely,
The Developer